The Small Business Survivor Index and numerous other surveys and reports rank Hawaii as one of the worst places to do business in the country, so it was no surprise when Steve Forbes famously said “doing business in Hawaii is equivalent to committing suicide.”
With all the challenges, Hawaii small business owners are imploring lawmakers this session to make changes that will allow them the freedom to make a profit, reinvest in their business and employ more people. Instead, key committee chairs are planning to increase the minimum wage and add even more regulations.
SB 331 is moving through the legislature, and if passed, will increase Hawaii’s minimum wage from $7.25 per hour to $8.25 starting January 1, 2014. The rate will increase automatically to $8.75 and to $9.25 in the years that follow, and then authorizes the Department of Labor & Industrial Relations to adjust the minimum hourly wage annually after that.
Many business owners say they will have to lay off employees or stop hiring if the minimum wage increases because all of their costs including benefits and other employees pay will increase as well.
Lowell Kalapa, president of the Tax Foundation of Hawaii, testified this session against the proposed minimum wage increase and a number of proposals to raise taxes.
“From the workers’ point of view – and perhaps it is the perspective of President Barack Obama who is pushing for a federal minimum wage increase – there is no way that a person could survive based solely on compensation that it paid at the minimum wage. But then again, the minimum wage was never considered to be a “living wage,” but rather an entry-level pay scale. It allowed workers who had no experience to be employed and to gain that important characteristic called “experience” something that all employers seem to want to see if they are out shopping around for potential employees,” Kalapa said.
The idea of boosting the minimum wage, whether it be at the state or federal level, has “political appeal” because most people believe they should be earning more than what they are earning currently, Kalapa said.
“It is all about ego and self-esteem that we are all worth more than what we are currently being paid,” Kalapa said.
But he and many business owners maintain a higher wage will impact everyone negatively, even the direct beneficiaries, because the costs of goods will also go up.
“So if the minimum wage rises to $8.75 or $9.00 per hour, where will employers get the money to afford that entry level worker? Sure the employer could raise the cost of the goods and services sold by the business and if all businesses take that strategy the overall cost of living and working in this state will get all that more expensive. So, will that single mom that the President wants to help be better off with the higher minimum wage if the cost of groceries goes up?” Kalapa said.
Hawaii’s legislators are largely elected with the help of private and public union leaders and environmentalists who favor bigger government, more spending and higher taxes.
That is why Hawaii has the highest taxes on personal income, consumption, gas and diesel, electric utilities, and among the highest on tobacco and alcohol. Hawaii has the uppermost cost of living as well as substantial individual capital gains taxes and unemployment taxes – and there are no individual or corporate alternative minimum taxes.
Hawaii also gets poor marks from the Small Business Survivor Index for sizable state and local government spending that has been sustained for more than five years and poor private property protections. In the Aloha state, the government even taxes its residents when they die. The Jones Act, a 1920s shipping law that prevents competition from foreign carriers between American ports, increases the cost of goods by as much as 40 percent. And businesses struggle under the weight of more than 17,000 pages of rules and regulations.
“Organized labor would love to see an increase in the minimum wage as the minimum wage sets the floor of the amount paid unskilled labor,” Kalapa said. “A higher minimum wage contributes to what is known as wage or salary compression, pushing the floor higher and bumping up against what is paid for skilled labor.”
Ken Schoolland, a professor at Hawaii Pacific University, and an award-winning author of the Adventures of Jonathan Gullible, said politicians claim to help the very people who they hurt the most with such laws.
“In 2007 the U.S. Congress passed a law mandating an annual rise in the minimum legal wage in American Samoa. The result was a major reduction in employment as cannery operations shifted to Thailand where wages are only a fifth as much,” Schoolland said.
“The General Accounting Office reported that despite a rise in the minimum wage, the average-inflation adjusted earnings fell in the islands. This prompted Congress to pass another law last summer to freeze these automatic increases in American Samoa at less than $5.60/hour, still well below the ultimate goal of matching the federal minimum of $7.25/hour. President Obama signed the freeze into law rather than to see the Samoan people suffer even more with continued increases,” Schoolland added.
Most employers already pay most workers far more than the minimum legal wage even though they are not required to do so, Schoolland said. But he said many politicians ignore these facts because they believe that their own values and motives are superior and that they can dictate value to others through the force of law.
“They can force prices, but not value. If a person contributes $6/hour of value to a company and a business is required to pay the same person $8/hour, the employer will lay off the worker or will eventually have to close up shop, move away, or automate…and still lay off the worker,” Schoolland said.
Hawaii lawmakers have not made a final decision on the minimum wage hike, but just today, the proposal received nearly full support from the Senate Ways and Means committee with the exception of a “no” vote from the lone Republican in the Senate, Sen. Sam Slom.
“At a time when we talk about improving Hawaii’s business climate, business has been deluged with tax and fee increases, regulations and the perennial minimum wage increase. Major studies have continually shown the minimum wage punishes people, particularly young people and minorities trying to get their foot in the door with their first job. The wage bares no relationship to productivity for the business and with matching taxes, mandates and benefit costs, easily adds another 30 to 50 percent above the wage in actual costs,” Slom said. “The current bill in the Senate also ties future increases to the Consumer Price Index, and further punishes small business.”